How Do You Trade a Double Top Chart Pattern? - Analysis of Double Tops Chart Pattern

To analyze the double tops chart patterns a trader needs to first learn about the analysis of double tops chart patterns explained below.

Double Top Setup

Double tops setup is a reversal setup which forms after an extended upward trend.

As its name implies, this double tops chart pattern formation is made up of two consecutive peaks on the chart that are roughly equal, with a moderate trough in between the 2 peaks.

Double tops setup formation is considered complete once price makes the second peak & then penetrates the lowest point between the highs, called the neck-line.

The sell signal from this double top pattern formation occurs when market breaks-out below the neckline.

In Forex, this double top chart pattern is used as a early warning signal that a bullish trend is ready to reverse.

However, double top pattern is only completed once the neck line is broken and the market moves below the neck-line.

Neck Line is just another name for last support level formed on chart.

Summary:

• Double top pattern forms after an extended move upwards- upwards trend
• This double top pattern setup signal indicates that there will be a reversal in the market trend
• We sell when price breaks-out below the neck-line: as described on the example below.

How Do You Trade a Double Top Chart Pattern? - Analysis of Double Tops Chart Pattern?

Double tops pattern look like an M-Shape pattern, the best reversal signal from the double tops pattern is where second top is lower than the first top as shown & illustrated below:

This means that the reversal signal can be confirmed by drawing a downwards trend line as shown below. If one opens a sell trade using this double tops reversal signal the stop loss will be placed just above this downwards trend-line.

How to Trade the Double Tops Chart Pattern - How Do You Analyze a Double Tops Chart Pattern?